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Why is it important?
Every organization has a business model, whether that model is expressed explicitly
or is understood implicitly. What determines an organization’s success is how well
it understands and evolves its business model. With barriers to entering markets
disappearing and innovation and disruption coming from new interests in the industry
as well as outsiders using new technologies, every business must explicitly understand
and design its business to ensure relevance to customers, sustainability, and growth.
CONTENTS
Introduction to the Concept 2
What is RAISE and How does it Apply to the Business Model Design? 4
Business in the 21st Century — the New Reality 4
Importance of a Shared Language 5
The Business Model Canvas 6
The Business Model Canvas Components 8
How to Use the Business Model Canvas 16
In Summary 18
Appendix A — Resource Reference List 19
2
Nespresso almost failed when it first launched. Its initial business model design offered the machine
and pods as a bundled product, sold to businesses through other coffee machine manufacturers. Par-
ent company Nestlé nearly shut Nespresso down, until a new CEO came up with the idea to offer the
two products separately, designing a unique strategy for each. Nespresso’s technology and products
didn’t change; the key to success involved changing the business model.
In its simplest expression, a business model is an organization’s rationale for how it creates and deliv-
ers value that its customers/clients/members consider important, and how the organization captures
a value in return. The concept of the business model is relevant to organizations of all sizes across all
industries, sectors, and associations. Any organization or enterprise that creates value for a target
group will have a business model, one that is either recognized and externalized or internalized and
intuitive.
This guideline will introduce the business model canvas, a key tool for describing, designing, and
challenging the way organizations do business, and creating innovation, prototyping new ways to
do business.
The business model canvas (Figure 1) is a framework that allows organizations to describe any busi-
ness model using nine fundamental building blocks. The term canvas is used because the framework,
like a painter’s canvas, is a creative space to visually represent ideas and elements of the business
model. The business model canvas serves as the blueprint for how the organization is to implement
the business strategy.
Businesses face many challenges facilitating internal strategic alignment, promoting and creating
innovation, integrating companies or new leaders, and communicating internally and externally. To
overcome these challenges, the organization requires a common language and shared understanding
of the business that allows a structured and repeatable process to sharing, designing and changing
the business.
Fortunately, the business model design is one such tactic than an organization may employ to address
how it will respond to these ever-evolving business challenges. The business model can also ensure an
organization focuses on what matters most (versus reactively responding to “fires” or “crises”) — its
customers or core stakeholders — in an effort to respond to external market forces and focus an orga-
nization’s efforts.
A useful ideology for showcasing the importance of the business model design is CPA Canada’s RAISE
philosophy (where Resilient + Adaptive + Innovative = Sustainable Enterprises) in the implementation
of the business model design. The RAISE philosophy can help guide an organization (or enterprise)
towards a unique strategy that provides an ongoing sustainable edge. The key drivers are explored next.
Organizations today must demonstrate their resilience in the face of constant turmoil and disruption.
They need to respond quickly to these constant and unexpected external changes while at the same
time sustaining regular business operations. The business model design refocuses an organization’s
efforts back to what is important as these crises arise and enables organizations to isolate such prob-
lems proactively so that strategic focus and awareness are maintained.
Organizations more than ever need to be adaptive in their ability to adjust to these ongoing market
shifts in the competitive landscape. Given this changed environment, they need to be nimble and
flexible enough to “proactively” respond to any and all competitive or market changes. The business
model employs methods to adapt.
Opportunities to innovate are typically a primary contributor to organizational success and longev-
ity. However, it is one area that many fail to adequately explore or execute upon. The business model
design is one such vehicle that can be leveraged to communicate the importance of innovation in
achieve its strategic and operational objectives.
Embracing such drivers as key components of an organizations strategic and operational plans and
decisions, ensures an organization’s (or enterprise’s) sustainable competitive edge. Combining the
resilient, adaptive and innovative drivers of success results in a unique and robust strategy for adopt-
ing and implementing the business model design as explored throughout the course of this guideline.
The rise of new markets in China, Brazil, and India as well as rapidly disappearing barriers to entry in
established markets are changing the face of global business. Organizations more than ever need to
demonstrate resilience (the resilient in RAISE) in the face of turmoil and disruption.
Technology shifts are dizzying. Technology has redefined not only the way we communicate but
also the way we transact business and how we expect businesses to interact with their customers.
Electronic transactions (e.g., loyalty swipe cards, RFID chip cards, tap and go payments, and direct
transfers) are sweeping the marketplace, redefining how we engage and purchase. The newest bat-
tleground is e-wallets, which aim to replace credit and debit cards. Social and mobile computing have
rewritten the rules of business and they continue to create new rules and new expectations.
Customers are more informed. Customers have access to information like never before. Through
networks and social media, customers have access to opinions and reviews. Consumers are checking
competitors pricing while in a store and checking availability elsewhere, before making the decision
to purchase the item in the current store. Often a company’s customers are more informed about
products than the company’s salespeople are.
We have to learn to challenge ideas we may have previously considered orthodox in order to adapt
(the adaptive in RAISE) to a marketplace that is messy, often unclear, and rapidly changing. Mobile
technology, social networks, and social media have made customers expect interactions with orga-
nizations to be immediate, responsive, and transparent.
Today’s environment of fast-paced market change has resulted in shorter product development
cycles, reduced shelf life of products and services, empowered consumers, and a massive change in
the nature of engagement with customers. Companies today are under constant pressure to innovate,
often driven by pressure from competitors outside the industry. The 20th century media industry (film,
television, video, music) has been massively disrupted by non-media companies who first redefined
how people watch video and are now entering the field of production: Amazon (an online sales com-
pany), Apple (a technology company), and Netflix (a distribution company) have become more than
distribution systems for content, they are now competitors in content development.
Many, if not most, of our strategic tools and approaches were formed to cope with the challenges of
the previous century. The business model, along with companion approaches like customer insight,
agile methods, design and visual thinking, form the 21st century strategic tool set that help businesses
operate and innovate effectively. This is a perfect example of how the drivers of RAISE are used in
practice.
Marketing professionals do not see the business the same way finance or product development pro-
fessionals see it. The same issues arise in social impact, member-based or government organizations
with multiple programs and services. People will view the business with the blinders or filters associ-
ated with their perspective on the business. This has an enormous impact when strategic discussions
require cross-functional or cross-program direction. How do you achieve a consensus between people
who have such divergent points of view to agree on and understand a common perspective?
One solution is to have these people share their ideas and interpretations — formalize and externalize
them — with the group so they can be understood. The business model approach focuses attention on
the use of a visual tool, the business model canvas, to build a common understanding using a shared
language.
The business model canvas is a framework FIGURE 2: HOW DOES THE BUSINESS MODEL
composed of the nine essential building blocks CANVAS HELP YOU?
The nine components are mapped out in a framework structure called the business model canvas
(Figure 3).
Using the business model canvas an organization can map out its entire business model in one image.
This works for established companies executing their current business as well as innovating new
products and services, not-for-profit, membership-based organization, as well as start-ups and
social ventures.
The power of this approach lies in the ability to apply the business model concepts and to use the tool
at various levels within an organization: the whole enterprise, specific sectors or business lines, individ-
ual business units, or particular solutions, products, and/or services.
Customers are motivated by what they have to do rather than who they are. Creating segments based
on the outcomes they are trying to achieve is known as outcome-driven innovation. Each segment’s
needs become the drivers of the value proposition design. The nature of a customer’s job may be
function (to achieve something), social (how they are perceived), or emotional (how they feel).
Channels (CH)
Channels represent the touch-points the business will use to interact
with its customers. There are two aspects to channels.
The business must consider the nature of its relationship with cus-
tomers: short term or long term, automated or personal. Think of
Amazon and Netflix as examples of companies that have automated
relationships: their customers are global and they maintain individual
profiles, which the company mines for information (as well as the activity associated with each profile).
In contrast, Rogers’ Small Business Help Line for its business phone service is a personal relationship
focussed on problem solving. Companies must understand the nature of the relationship customers
want and how best to scale this relationship across the market.
The customer relationships component also includes the company’s strategies for acquiring new
customers, keeping their current customers engaged, and increasing customer interaction. These are
commonly referred to as the business’s Get-
Keep-Grow strategies. Online communities and
user forums are a common method for compa-
Guiding Questions to Ask About
nies to engage and retain customers as well as
Customer Relations
provide access to other users as a means of trou-
• What kind of relationship do your
bleshooting issues the customer may encounter.
customers want?
Customer relationships often involve the quali- • What are your strategies to attract
ties of an offer (e.g., local, fair trade, ease of use, new customers?
frictionless purchasing), brand, or the discounts • How will you retain your customers’
and incentives that get new customers to try the participation?
product or service for the first time. For exam- • How will you get your customers to
ple, Tim Horton’s uses its “Canadian” brand very increase their interactions with you?
effectively to attract customers and build its
reputation. Customer relationships can also include retention strategies such as loyalty programs and
incentives to keep customers coming back or increasing their activity. Tim Horton’s also relies on its
famous “Roll Up The Rim” to win contest to attract and retain customers. Other examples of retention
strategies are affinity and loyalty programs that leverage the progression and reward dynamics to
keep customers engaged with the company.
In a traditional “razor and blade” business model, customer acquisition is based on a promotional, free,
or inexpensive “bait” product (e.g., the razor) and a high-margin disposable product (e.g., the blades)
with the company relying on extensive patents to “lock-in” customers to the product. This pattern
also uses retail-based advertising and product placement strategies for customer attention. Dollar
Shave Club radically changed this by eliminating the retail component, opting instead for a direct
sales (dis-intermediating) model. The company’s customer acquisition and retention is based, not on
the product, but on the social and emotional impact of the whole experience (i.e., buying, enjoying,
and using the product). Social media engagement (e.g., newsletters, humorous videos) drive viral
and network effects.
Customer relationships (CR) are about the strategies the business will follow in Get-Keep-Grow while
channels (CH) are about the mechanisms companies use to deliver on those strategies.
A business may have an acquisition strategy (i.e., how to bring customers in) that involves using social
media to make offers or special deals. The mechanisms the company chooses as channels may be
limited to Facebook and Twitter. Another company, in the fashion industry for example, may have a
similar customer acquisition strategy, but it may choose to use more visual platforms like Instagram
or Pinterest as channels to promote their products.
In recent years, with the success of the software as a service (SaaS) model, companies have shifted
from a product or upgrade sales model (i.e., transactional revenues) to an online service requiring a
subscription (i.e., recurring revenues). Great examples of this are Adobe and Intuit Quickbooks.
When value is provided to customers for free (e.g., Skype’s free video call service), it is important to
track that free revenue stream. Such business models may be financially unsustainable for the com-
pany over the long term. It is strongly recommended to identify free products or services as a revenue
stream since they may be free now but may have a fee in the future. Tracking the “free” revenue stream
allows companies to assess the impact of the offer and the customer segment on the financials of the
business.
A further consideration, one that is important to governments and not-for-profits, is the “third party
funded” business model pattern. In this model Party A pays the business to deliver services or products
to Party B. The business may receive no money from Party B, but it may acquire data as an alternate
form of revenue. The data collected is used to justify to Party A how effective the business has been.
Many government-based business models suffer because they do not include data-gathering as a fun-
damental part of their business model.
The key activities component is often is susceptible to information overload. It is very easy to get
bogged down in detail when looking at activities. Key activities must be kept at a strategic level
(i.e., capabilities), not at an operational level (i.e., processes).
There are four types of key resources the business has to consider:
• Intangible resources are those intellectual or virtual resources
necessary to run the business (e.g., intellectual property, patents
and copyrights, data).
• Tangible resources are the physical resources necessary to run
the business (e.g., facilities, vehicles, machines, IT infrastructure).
• Human resources are comprised of people and expertise (e.g., sales force, subject matter expertise).
• Financial resources, which differ from rev-
enue in that they are specific to capital
investment (e.g., loans, guarantees, line of
credit, stock), are used to launch or expand
Guiding Questions to Ask About
the business.
Key Resources
• What tangible resources does the
business need (e.g., plants, stores, IT)?
Additional Guidance — Identifying
• What intangible resources does the
necessary resources and activities
business need (e.g., data, licenses)?
The infrastructure components of key activities
• Which human resources are critical to
and key resources are the “create value” part of
the business’s success (e.g., expertise,
the definition of a business model. As a business
people)?
identifies its activities and resources, it is a good
• What finances does the business need
practice to check them against the value propo-
to build, launch, or grow?
sitions (i.e., have you identified all the elements
necessary to create those value propositions?). Likewise, it is important for the business to check activ-
ities and assets against customer relationship strategies and channels to make sure it accounts for all
elements.
Businesses very rarely have all the resources they need to run the
business independently. Businesses require partnerships in order to
acquire the resources they need to operate, reduce risks, or optimize
the business by providing scale.
Which costs will have the most impact on the business? The busi-
ness’s costs are derived from considering the other components of
the model: activities, resources, and partnerships.
In some cases, executives or representatives of the business may want to see costs include items such
as salaries and operational costs. In such cases, one may include a cost centre titled Salary General
and Administration (SG&A) as a catchall.
The canvas can be a part of business-unit planning. It creates a shared language between business
units and each unit can extrapolate its business as part of the whole company (e.g., nested models).
The canvas can serve as a dashboard to track progress. By establishing metrics in each of the criti-
cal components of the canvass (or those in which change initiatives are happening), businesses can
track the progress of its initiatives. Businesses can colour-code strategic initiatives to set them apart,
visually.
The canvas can be used to design and evaluate partnerships. Businesses can map out the current
state of its business model and compare it with the business model of a potential partner to assess
the quality of fit as well as benefits of a partnership.
The canvas can be used for competitive analysis. A business environment analysis focuses on key
trends and changes in the market. Businesses can go further and sketch out models of key competi-
tors to better understand the landscape.
Organizations can use the canvas to map out each of its various business lines along the continuum
of improving existing models to inventing new models. In doing so, the canvas becomes a key tool
for managing a “portfolio” of business models, an important component of long-term strategy.
In each of these areas, the business model canvas is a key tool for supporting, integrating, and aligning
strategic conversations.
The book Business Model Generation (Osterwalder and Pigneur, Wiley, 2010) was predicated, in large
part, on looking at how companies design, test, and build new growth engines. The business model
canvas, the main tool of the book, can be used to prototype ideas for business change.
The canvas can be used as a template to develop new ideas in multidisciplinary innovation teams, or
for ideas submitted across the organization. With a clear understanding of the organization’s business
model, the canvas can be used as a test structure or as a core component of the business case for how
an innovation project will improve the business. It is a tool for comparing products, services, or ideas
from different business units.
In a business-to-business (B2B) environment, the canvas can be used to map out the business models
of customers. By mapping their models, organizations can better understand customers and their
needs. It allows companies to adapt (the adaptive in RAISE) to better serve customers.
The business model canvas can be a key tool and template for the generation and testing of ideas and,
when combined with design thinking approaches and customer development process, makes a pow-
erful innovation enabler.
The canvas can be used to share and disseminate strategic directions of the organization. By creating
a common language and a commonly understood frame of reference, the canvas (the blueprint of the
strategy) can be a powerful communication tool. This works even more effectively where the strategic
direction is being co-created across the organization.
Possibly the most potent use of the business model canvas is to provide a shared language across the
various functions of the organization (e.g., product/service development, operations, finance, market-
ing, and sales). Often the business unit an employee belongs to will frame their view of the business
based on their lens. For example, finance may see the business in a very different way than marketing.
The canvas and its nine components create a commonly understood language and a complete refer-
ence of the business front and back stage as well as financial.
The business model canvas assists with mergers and acquisitions. It can be used to sketch out the
business models of two or more organizations and assess the fit of the two businesses. From the
organization-unit perspective, where integrations are happening, the canvas can be used to bet-
ter communicate the business to new leadership. Where there are multiple acquisitions, the canvas
can be used to align the new businesses with the strategy, direction, and operations of the larger
organization.
The canvas can also be used be used in developing an exit strategy, preparing a position statement
and addressing key issues ahead of a sale or acquisition, or taking the business through an IPO.
In Summary
The term “business model,” as a concept, represents the rationale of how an organization or enterprise
creates and delivers a value that is important to its target customers. The term “customer” (or, alterna-
tively, user, consumer, client, or member) is defined as the person or organization for which a business
creates value. All organizations have a business model, even if that model is intuitive or an internalized
understanding of how the business works.
The business model canvas, a framework based on nine core components, provides organizations a
common language to share, communicate, analyze, and change their business models. The business
model canvas is, most importantly, a strategic tool organization’s can use to think about their business
and to prototype new ideas, products, and services.
The canvas can be used in all sectors (i.e., private, public, not-for-profit, and government) and at many
levels within an organization. It can be used at an enterprise level or at a business unit level. It can be
used with product lines, individual products and services or to prototype potential innovations or new
directions.
Professional accountants in business by their very nature can leverage their know-how and exper-
tise in guiding organizations towards implementing such a unique customer-centric and competitive
strategy. The ability of the business model design to drive alignment and focus across an organization
demonstrates how powerful a tool it can be (if implemented correctly).
This facilitates the ability for an organization to maintain and sustain itself as a resilient, adaptive, inno-
vative and sustainable enterprise (per the RAISE philosophy) in competitive marketplaces. Ultimately
these drivers will aid both the professional accountant and organizations in ensuring successful adop-
tion while equipping themselves to engage in the Canadian ideal of good business.
Books
Osterwalder, A. and Yves Pigneur, Business Model Generation. John Wiley & Sons Inc., 2010.
Alexander Osterwalder et al., Value Proposition Design. John Wiley & Sons Inc., 2014.
Blank, S. and Bob Dorf, The Startup Owners Manual — Step By Step Guide to Building A Great
Company. K&S Ranch Publishing, 2012.
Johnson, Mark W., Seizing The White Space (explanation of the “job-to-be-done”). Harvard Business
School Publishing, 2010.
Tools
The Business Model Canvas is released under a Creative Commons licence and is free to use. The
requirement for use is proper attribution of the source of the tool. The canvas may be downloaded
for free at: www.strategyzer.com — Select canvas in the menu, click on the BM canvas to download
Video Resources
BM Generation Explained: overview of the BM Canvas
www.youtube.com/watch?v=QoAOzMTLP5s
Steve Blank: How corporations can learn about innovation from start-ups
www.youtube.com/watch?v=AX0EnxpkZ6I
DISCLAIMER
The material contained in this management accounting guideline series is designed to provide illustrative information of
the subject matter covered. It does not establish standards or preferred practices. This material has not been considered or
acted upon by any senior or technical committees or the board of directors of CPA Canada and does not represent an official
opinion or position of CPA Canada.